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This article, like many others, was first published exclusively for long-term supporters, 3 hours before everyone else got to read it.

Mohit Saraf rejects Rajiv Luthra’s 24h ultimatum, counters with one of his own for tonight • UPDATE-2: Luthra announced Harish Kumar, Aniket Sengupta as ‘equity’

Matt Damon would no doubt agree with the current status of negotiations at Luthra
Matt Damon would no doubt agree with the current status of negotiations at Luthra

L&L Partners senior partner Mohit Saraf has accused managing partner Rajiv Luthra of “misconduct and subterfuge”, “malafide actions” and breaching “fiduciary duties”, in his response to a public 24 hour deadline sent by Luthra in an email on Sunday evening.

Luthra had warned Saraf in his email sent to all corporate salaried partners (do read the previous story for context to this one) that even if Saraf did not agree to dilute his equity stake (or did not respond to the email by 6pm, 5 October), Luthra would go ahead and unilaterally dilute some of his equity to L&L salaried partners who met certain criteria.

Saraf responded yesterday just before the deadline had ended, saying: “... for the record, you do not have my consent, you have not sought my consent and I do not consent to your proposal for the introduction or induction of a partner into the Firm.”

However, Saraf admitted that he could not stop Luthra from unilaterally deciding to dilute his equity. “Just to be clear, you could of course share some of your profits earned by you during a year with certain persons provided we have discussed and not been able to arrive at a consensus on having such persons as equity partners,” wrote Saraf, adding: “Such persons would not however be an equity partner of the Firm and would have no say in the Firm and would not be partners for the purposes of the Partnership Act and partnership deed, and for both of which, the partners would be only you and I.”

Update 7 October, 19:18: Luthra responded late yesterday

Update 7 October: We understand from several sources that Luthra had responded to Saraf’s email and the entire corporate partnership yesterday, several hours after his Tuesday 6pm deadline for partners to submit their applications to be considered equity. We understand that Luthra had announced that he had selected several partners for equity, though he did not identify anyone by name.

Update 11 October 2020: Luthra announces 2 equity partners

Update 11 October 2020, 14:32: We understand from several sources, as well as a report on Bar & Bench today, that Luthra has sent an email around yesterday announcing that he had made Delhi-based Harish Kumar and Mumbai-based Aniket Sengupta equity partners. We have not been able to confirm (nor has Luthra announced) whether that means equity has actually been released yet, how it would be structured or any other details; however, a confrontation in court is looking increasingly inevitable.

Original story continues below

Saraf alleged that the “real design” behind Luthra’s offer to dilute was because Luthra had “done nothing in the last eleven years except stall and be dilatory in my requests” regarding widening the equity partnership at the firm. Saraf added that in December 2019, Luthra had told him that the “best way forward is dissolve the partnership, you go your way I go mine”, in the “simplest and most amicable way”.

Saraf defended himself against Luthra’s charge that he was standing in the way of opening up equity, writing: “It is on record that I have been striving for induction of new partners and equity dilution to make the Firm more able and professional while Mr. Luthra has been making a mockery of the process by coming up with one proposal after another and not engaging in any discussion to achieve closing of any proposal; his approach has been ‘my way or the highway’, which is also evident from the December 2019 conversation referred to above.”

(It needs to be said that it does usually take two to Tango: according to three sources with insider knowledge of the firm, Saraf had not really made any real internal pitch for dilution of equity either, at least not until late in 2019; until then Saraf and Luthra had presented a pretty united front to the rest of the partnership, which had successfully stalled reform plans for years.)

Criterion collection

“The firm cannot become professional if Mr. Luthra non-consensually determines the eligibility criteria of the inductees and proceeds to one-sidedly select the inductees,” said Saraf about Luthra’s offer to get the “ball rolling” (in Luthra’s words).

Saraf wrote:

As to the criteria, I believe every retained partner should be eligible subject to meeting performance criterion and the criteria for equity participation needs to be unanimously agreed as a first step between us. We also need to discuss and unanimously decide on the quantum of equity dilution as a second step. While you don’t have the right to unilaterally induct equity partners and without prejudice to the same, your email is shockingly silent on the quantum you wish to dilute and the management and participation rights which such persons would have, and which also needs to be unanimously agreed between us.

Surely, in a modern professional partnership, all equity partners, including any new inductee should have a seat at the table and participatory rights in the decision making of the Firm and a say in the future of the firm.

I have already suggested and advocated for a 49% dilution in the first instance with both you and me holding 25.5% each following the dilution; I had also written to you that while the holding of 25.5% equity each by us is ideal, in the interest of the Firm, we could consider a 40% holding by you, 27% by me and balance for new equity (basically your proposal discussed as Option 2 in August amongst all partners) provided there is a commitment by you to dilute in 2 years to 27% to allow for flexibility to bring in organic and inorganic senior level talent as equity partners.

This was important to ensure that the Firm continues to grow and becomes an ever-lasting institution. I had also requested to close on the actual terms of the new Partnership Deed.

The current deed would be impossible to work as far as new partners are concerned and they have actively pointed that out. Matters such as inheritability and retirement age and benefits are not something which can work for a modern work-oriented partnership. This is what I have been advocating for so long. I had shared detailed notes on the partners group on issues which needed to be agreed so that the Firm can progress, eg. retirement age, succession rights, payments on retirement and death, modification of interest of founders on account of value they have contributed in the last 5 years, etc. Please see my communication dated 31.08.2020.

You failed to reply to the points raised. Then you wrote on 13.09.2020 that you will not discuss any further and you gave a 30-day notice to lawyers to stay or leave the Firm.

Saraf wrote that he disagreed with the criteria outlined by Luthra for aspiring new equity partners, saying “your criteria is mala fide and designed in any case to exclude some of our most able and valuable colleagues merely because they chose to be vocal about their passion for the Firm”.

He added:

What is the basis of 16 years of standing at the bar when firms of our standing provide equity to lawyers at 10-13 years of experience? Also, why would you discriminate between lawyers on basis of timing of bar council registration given that we recruit from corporates and even overseas.

Of course, as is your wont, being aware of our partners and counsels background and the year of their registration with the bar council, you have in a malafide manner designed a criteria to exclude certain retained partners who have in the recent months been vocal about issues concerning the Firm including equity. These retained partners also happen to be well deserving and most suitable to be equity partners of the Firm; you wish for them to beg for what is rightfully theirs.

It is such an embarrassment.

Re-born ultimatum

Saraf then added an ultimatum of his own in response to Luthra’s deadline to aspiring equity partners, whom Luthra had asked to submit to him their applications by 6pm tonight (6 October).

Upping the ante, perhaps aiming it at those partners who might have thought about applying to Luthra’s unilateral equity offer, Saraf responded: “I call upon you to provide me with a list of retained partners who apply to you, not later than 07.30pm on 6th October 2020. If I do not receive any message from you by 07.30pm, 6th October, 2020, I would presume that nobody applied pursuant to your email.”

Saraf’s email had begun with “implor[ing] [Luthra] to please start behaving professionally and in compliance with legality and ethics expected of a partner of a law firm”, and to stop creating “confusion, disappointment, discontent and division”, “as if the disastrous [Zoom] Townhall was not enough”.

His email ends with “without prejudice” boilerplate, as well as notifying Luthra of his address for serving future notices and correspondence under the deed, noting: “There was a simpler way of doing this and that is for you to have a civilized discussion by first responding to, and acting on, my past communications including the ones dated 31.08.2020 and 21.09.2020 which contained important points on equity dilution and the proper steps.”

The latest exchange de facto puts the two warring factions back to square one without any obviously apparent intentions from either to rebuild bridges or make minds meet.

Increasingly, with neither side showing any willingness to give ground at the moment, it is appearing as though it will have to be either mediation or litigation to disentangle or cut the Gordian Knot.

If neither happens, this has good odds of turning into a war of attrition that could drag on for months.

We have reached out to Luthra and Saraf for comment.

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